By Nafsika Palbas

28 June 2017

In March this year the Victorian Government announced proposed reforms to address housing affordability in Victoria

On 9 May 2017 the Federal Government announced proposed changes to the Foreign Resident Capital Gains Withholding Regime (the Regime) as part of the 2017-2018 Federal Budget.

What is the current Regime?

Introduced on 1 July 2016, the Regime aims to assist the Australian Taxation Office (ATO) with the collection of tax owed by foreign residents on the sale of Australian assets and to address low levels of compliance by foreign residents with their Australian taxation obligations.

The Regime currently applies to Australian real property and related interests valued at $2 million or more.

If the Regime applies, the Seller must obtain and provide the Purchaser with a Clearance Certificate issued by the ATO prior to settlement. If the Seller fails to do so, the Purchaser must withhold 10% of the purchase price and remit it to the ATO. This is generally included as a condition in the Contract of Sale. Penalties may apply for non compliance.

How is the Regime changing?

For Contracts of Sale entered into on or after 1 July 2017:

  1. The Regime applies if the value is $750,000 or more (a decrease from $2 million); and
  2. The Purchaser must withhold 12.5% of the purchase price and remit it to the ATO (an increase from 10%).

What Impact will the changes have?

In view of average property prices in Victoria, lowering the threshold to $750,000 will affect a larger proportion of sales and purchases.

Sellers should be aware of their obligations to obtain a Clearance Certificate and obtain it early so as to avoid settlement complications or delays. Clearance Certificates are valid for 12 months.

Purchasers should request a copy of the Seller’s Clearance Certificate as part of the settlement process and be aware of their obligations in the event it is not provided.

 

For advice or assistance in relation to property matters, please contact Jonathan Tisher, Michael Fetter, Phillip Leaman, Ron Cohen, Nafsika Palbas, Julia Thermos or Natalie Chani.

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